Chinese stocks add to previous declines, May still faces opposition from domestic lawmakers

Summary:

• Lacklustre trading on the FX market during Asian session amid absence of the US and Japanese traders

• Chinese equities headed lower despite optimistic comments regarding Xi-Trump meeting from the US and Chinese officials

• PM May’s appearance in the Commons shows that yesterday’s cheer could have been hasty

Price moves during the final Asian trading session of the week were a bit subdued as Japanese traders joined the US peers and took a day off for holiday. Major currencies were trading in narrow ranges with no big swings spotted across the board. Australian dollar is the weakest currency from the G10 basket. This may come as surprise to some as CBA/Markit released preliminary PMI indices for November over the night and they showed continuation of expansion. Namely, the manufacturing gauge held steady at previous 54.5 pts while the services index moved higher from 51.7 pts to 52.6 pts. Nevertheless, it seems that markets are more concerned over looming slowdown in China rather than semi-important domestic soft data.

CHNComp managed to break above the resistance zone marking lower limit of the previous consolidation at the turn of October and November. However, Chinese equities failed to add to these gains and in turn we were observing some lacklustre trading in the vicinity of the aforementioned zone in the past couple of days. Trump-Xi meeting could be a key to future price action. Source: xStation5

Speaking of China, it should be noted that stock market indices from this country stood out during Asian trading. However, there is nothing to cheer about as Chinese benchmarks differed from region peers by taking the biggest step back. HSCEI (CHNComp) is trading around 1% lower at press time while stocks in Shanghai a pulling back as much as 2%. Technological sector led declines with growing fears that the United States may target Huawei Technologies as part of Trade War dealing severe blow to Chinese business. While in Europe Brexit summit scheduled for this Sunday is drawing attention, investors in China are more concerned about event scheduled one week later - G20 summit in Argentina. The summit will be the last “official” chance this year for the US President Trump and the Chinese President Xi to meet and talk. Having said that, it also looks as the last chance for trade conflict to soften preparing ground for potential conciliatory talks next year. Elsewhere, the Australian S&P/ASX 200 (AUS200) was the only major and one of few overall indices from the region to resist downward pressure.

GBPUSD bounced off the previous swing level around 1.2760 handle on the back of Brexit agreement news yesterday. Nevertheless, hearings in the House of Commons showed that the hardest hurdle - getting support at home - is still in place. Source: xStation5

When it comes to the European politics yesterday’s GBP shine is fading today. The British currency is one of the worst performing majors on Friday morning (gaining only against CAD and AUD). Of course, it can be reason with correction following yesterday’s rapid advance but there could have been also other reasons for it. Namely, the PM Theresa May appeared in House of Commons yesterday and took questions from MPs after presenting draft deal on future ties. During two and half an hour long session she responded to questions from over hundred MPs with majority of them seeming to oppose the draft deal. This highlights the fact that agreeing on the deal with EU is nowhere nearing getting support for it at home. Some lawmakers called proposed solution to Irish backstop a “constitutional anomaly” while others said that extending transition period can be seen as giving up control. Meanwhile, Michael Saunders, devoted BoE hawk, said that in case Brexit runs smoothly the Bank may need to speed up the pace of planned monetary tightening afterwards as inflationary pressure will build quickly. However, given response of the domestic lawmakers to proposed deal it does not look like Brexit will run smoothly. More news on the topic will surface over the weekend as PM May is scheduled to meet with the European Commission President Juncker on Saturday and attend EU summit on Sunday.

In other news:

• Oil once again turned lower erasing latest short-term bounce higher and testing this week’s lows at press time

• Some countries that were granted waivers are said not to resume purchases of the Iranian oil until January, but China is set to start buying as early as this month

• Chinese officials are optimistic ahead of G20 Xi-Trump meeting saying “the US wants the deal”

• Trump says he is “very prepared” for talks with Xi

• US markets will close earlier today, muted trading set to continue into the weekend